Tax Implications When Selling Capital Assets

December 6th, 2016 No comments

Generally, the IRS requires that a capital gain or loss be reported for tax reporting purposes when a capital asset is sold or exchanged.

Thus, it is important that you understand what a capital asset is. Nearly everything you own, whether for personal, business, or investment purposes, is a capital asset. Some examples are household furnishings, art work, stocks and bonds, coin and stamp collections, gems and jewelry, precious metals, vehicles and other machinery, personal residences, investment properties, and rental properties to name a few. Examples of assets that are not considered capital assets of business owners are inventory and accounts receivables.

Once you have disposed of a capital asset, you need to determine the gain or loss. A capital gain or loss is the difference Read more…

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Form 1099-MISC Misuse and Misconceptions

November 29th, 2016 No comments

Since the December 31 year end is quickly approaching, it is the time when some employers think about issuing their employees a holiday or performance bonus. Generally, all payments made to employees MUST be reported on Form W-2.

Let’s look at some of the typical scenarios employers face. Read more…

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2017 Social Security Changes

November 22nd, 2016 No comments

The Social Security Administration has announced its increases to the 2017 maximum amount of earnings subject to the Social Security tax and the monthly benefits to be paid to Social Security beneficiaries.

Earnings: The maximum amount of earnings subject to the Social Security tax would increase 7.3 percent to $127,200 in 2017 from the current $118,500. This is the largest increase in more than three decades, and will generate $1,078 per worker who reaches the contribution plateau. It is estimated that 12 million of the 173 million workers will be affected by this increase.

Benefits: Social Security beneficiaries will receive Read more…

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Seniors Need to Plan When to Claim Medical Expenses

November 15th, 2016 No comments

There could be an unwelcome surprise for many citizens (age 65 or older) who itemize deductions on their tax return rather than claim the standard deduction. Traditionally, persons were only allowed to deduct medical expenses that exceeded 7.5% of their adjusted gross income (AGI).  In 2010, Congress made changes to the amount of medical expenses that Americans can claim on their tax returns as part of the Affordable Care Act (ACA). The 7.5% threshold was increased to 10% of AGI beginning with the 2013 tax year. To avoid the wrath of seniors age 65 or older who vote, Congress grandfathered this 10% threshold until tax year 2017. Thus beginning with the 2017 tax year, all Americans, regardless of age, will need to have medical expenses exceed 10% of their AGI in order to deduct medical expenses as an itemized deduction.

Accordingly, it is very important for taxpayers who are age 65 or older in 2016 Read more…

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FAFSA Rules Changes You Need to Understand

November 8th, 2016 No comments

Two major changes to the Free Application for Federal Student Aid (FAFSA) will take effect for the 2017-2018 school year that runs from July 1, 2017 through June 30, 2018.

Many persons are aware of the change that will allow the filing of the FAFSA form as early as October 1 of the previous year instead of January 1 of the upcoming school year. However, many are unaware of the new income information requirements.

For a student attending college during the period from July 1, 2016 through June 30, 2017, the rules are the same as in prior years. The FAFSA application can be submitted starting January 1, 2016 through June 30, 2017. The income that will be reported on the FAFSA application will be for the 2015 tax year.

For a student attending college starting July 1, 2017 through June 30, 2018, the income that will be reported on the FAFSA application will also be for the 2015 tax year. Some have referred to this as the “prior prior year” (PPY) income test. The FAFSA application can be submitted starting Oct 1, 2016 through June 30, 2018.

For a student attending college in a school year that begins July 1, 2018 through June 30, 2019, the application can be submitted for the period beginning October 1, 2017 through June 30, 2019, and the income that will be reported will be for the 2016 tax year. The year prior to 2018 is 2017; and the year prior to the prior year of 2017 is 2016.

The new application timelines means Read more…

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Married Couples Need to Do What?

November 1st, 2016 No comments

Although we live in the information age and the world of convenience, there is yet another task that newly-married couples need to address after writing their thank you cards and perhaps the bride changing her maiden surname to her husband’s surname with the Social Security Administration.

The new task to complete is a health insurance review if you are enrolled in coverage through the Health Insurance Marketplace and you receive premium assistance in the form of advance payments of the premium tax credit. Don’t forget that your premiums were based on your family composition and household income.  This could all change due to the change in your marital status and household income.

It is important Read more…

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Is It a Loan, Contribution of Capital or Wages Paid?

October 25th, 2016 No comments

Reading court cases often reveals how taxpayers can best structure their business transactions. In the Tax Court case of Scott Singer Installations (T.C. Memo. 2016-161), the Court discussed the criteria used to determine whether Mr. Singer was an employee and if personal expenses paid by his S corporation on behalf of Mr. Singer should be treated as wages. Mr. Singer was the sole shareholder and president of his company and served as its sole corporate officer.

To grow his business, Mr. Singer established a home equity line of credit and advanced the entire HELOC to his business. He then refinanced his primary mortgage and advanced those funds to his corporation. He later took a general business LOC and advanced those funds to his company, and borrowed from his mother and her boyfriend. Mr. Singer treated every advance he made to his company Read more…

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IRS To Delay Issuance of 2016 Refund

October 18th, 2016 No comments

One of the techniques to combat identity theft used by the IRS and state tax jurisdictions is to delay the issuance of taxpayer refunds. So while the IRS encourages taxpayers to file early to minimize identify theft, the IRS’s may decide to delay the issuance of your refund check to combat ID theft. In fact, if a taxpayer is claiming the Earned Income Tax Credit or the Additional Child Tax Credit, the IRS is required by law to delay by a few weeks the issuance of the refund. This delay of issuing refund checks may likely also apply to those who seek tuition credits.

Where the IRS says that it issues most refunds in less than 21 calendar days, it is not uncommon for taxpayers with large refunds to have to wait 10-12 weeks to receive their refunds. During this extended period, the IRS is checking with third parties and the IRS’s internal records of the taxpayer’s filing history to determine if the refund claim appears legitimate. Taxpayers who are concerned about the status of their refund claims need to contact the IRS. The IRS has on its website a Where’s My Refund tool that will show you if the IRS has received your tax return and if your refund claim is being processed.

Whereas many taxpayers like the idea of receiving a large refund from the IRS, this approach may not be healthy in today’s identify theft environment. The “good news” is Read more…

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CPA Loses to IRS in Tax Court

October 11th, 2016 No comments

This is an interesting Tax Court case, if for no other reason, it illustrates the importance of a taxpayer working with an experienced and ethical tax professional. For all those taxpayers who are looking for a CPA and their first question is “How much do you charge to prepare a tax return?” rather than inquiring about the experience and expertise of the tax preparer, here is what you may get.

The CPA (Sam D. Kilpatrick v. Commissioner of Internal Revenue U.S. Tax Court, Dkt. No. 17242-13, TC Memo. 2016-166, August 29, 2016) was audited by the IRS, was denied deductions he had claimed on his personal tax return and was assessed accuracy-related penalties, and decided to represent himself in Tax Court. Perhaps Mr. Kilpatrick never heard of the saying “An attorney who represents himself in court has a fool for a client.” Undoubtedly, this also applies to CPAs who decide to represent themselves.

Mr. Kilpatrick conducted his CPA practice Read more…

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Have You Abandoned Your Retirement Account?

October 4th, 2016 No comments

Governor Wolf and the State Legislature of Pennsylvania took a bold step that could conceivably affect the IRA retirement accounts of PA residents. In the budget bill passed in July, a new provision makes it easier for PA to deem IRA retirement accounts “abandoned,” which would thereby require these accounts to be turned over to the state as unclaimed property regardless of the age of the owner of the account.

First, is this legal? Unfortunately for PA taxpayers, it is legal. All states have abandoned property laws, known as escheatment laws. These laws allow a state to take possession of individuals’ lost property so the state could use its greater resources (such as tax and property records) to find lost owners and reunite them with their property. The premise of the law is good. Whether states actually use their greater resources to find the property owners is questionable.

How does the escheat process work? Read more…

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